Tesla: Silence is golden!
Jan-20
The Story
With the wind behind its back, Tesla has consolidated its hold on the electric car market and will continue to grow that market, at the expense of conventional car makers. Pushing its production towards 2 million cars by 2030, it will also be able to deliver higher margins than conventional auto companies in steady state. The rise in its market capitalization has reduced its cost of capital and the chance of failure. While Tesla will be able to invest less than other auto companies to add to capacity, its need to ramp up production will require more capital, creating negative cash flows in the near years. While other revenue sources (green energy, driverless cars in ride sharing) will supplement revenues, it will remain at its core an electric car company.
The Assumptions
Base year Years 1-5 Years 6-10 After year 10 Link to story
Revenues $24,578 40.00% 32.35%➡1.75% 1.75% Growth in EV market & Tesla's early mover advantage work in its favor.
Operating margin 1.60% 4.88%➡18.00% 18.00% 18.00% Continued economies of scale & brand
Tax rate 25.00% 25.00% 25.00% 25.00% Global tax rate
Reinvestment Sales-to-capital = 2.0 RIR = 17.50% Capacity build up allows for less reinvestment in the near years.
Return on Capital 1.59% Marginal ROIC = 22.69% 10.00% Cost of entry will limit competition.
Cost of Capital 6.94% 7.03%➡7.40% 7.40% Moves to median company cost of capital.
The Cash Flows
Revenues Operating Margin EBIT EBIT (1-t) Reinvestment FCFF
Base year (2019) $24,578 1.60% $394 $296
1 (2020) $34,409 4.88% $1,681 $1,260 $4,916 ($3,655)
2 (2021) $48,173 8.16% $3,932 $2,949 $6,882 ($3,933)
3 (2022) $67,442 11.44% $7,717 $5,788 $9,635 ($3,847)
4 (2023) $94,419 14.72% $13,899 $10,425 $13,488 ($3,064)
5 (2024) $132,186 18.00% $23,794 $17,845 $18,884 ($1,039)
6 (2025) $174,949 18.00% $31,491 $23,618 $32,072 ($8,454)
7 (2026) $218,161 18.00% $39,269 $29,452 $32,409 ($2,958)
8 (2027) $255,357 18.00% $45,964 $34,473 $27,897 $6,576
9 (2028) $279,361 18.00% $50,285 $37,714 $18,003 $19,711
10 (2029) $284,250 18.00% $51,165 $38,374 $3,667 $34,707
Terminal year $289,224 18.00% $52,060 $39,045 $6,833 $32,212
The Value
Terminal value $570,130
PV (Terminal Value) $287,724
PV (CF over next 10 years) $11,445
Value of Operating Assets $299,169
Adjustment for distress $149,585 Probability of failure: 10.00%
- Debt & Minority Interests $14,708 Based on Ba1 rating from Moody's
+ Cash & Other Non-operating assets $6,514
Value of equity $276,017
- Value of equity options $9,012
Number of shares 177.0
Value per share $1,277.54 Stock was trading at $581.0
In millions USD except per-share items.